Evaluating the Permian Assets in the ConocoPhillips Acquisition of Marathon Oil 

Last Wednesday, ConocoPhillips (COP) announced the acquisition of Marathon Oil (MRO), the latest mega deal in a wave of consolidation across the oil and gas industry and largest announced to date in 2024. The deal is an all-stock transaction, valued at $22.5 billion, including $5.4 billion in net debt, representing a nearly 15% premium to last Tuesday’s closing price. The market response was initially mixed, with MRO stock up 8% and COP down 4% immediately following the announcement. To understand this response, last week we performed a high-level evaluation of the Eagle Ford assets and this week we are examining the Permian assets of both companies using TGS Well Data Analytics.

As of Q1 2024, MRO is producing nearly 307 MBOE/D, compared to 962 MBOE/D for COP, from operated wells in the US and Canada (Figure 1). In the Permian Basin, since the start of 2019, COP has brought online 1,106 new wells compared to 112 for MRO in the area. MRO and COP wells align in the core area of the Delaware Basin while COP assets also extend to the southern portion of the Delaware Basin and Midland Basin.  

6-7-2024-Figure 1 COP MRO Overview-1
Figure 1.  Combined COP & MRO North American coverage and production.

Across the greater Permian Basin, COP is producing 316 MBOE/D and MRO at 20 MBOE/D with 44% and 87% of total Permian production, respectively, concentrated in the core Delaware Basin near the state line (Figure 2). In the core Delaware Basin since 2019, both companies have targeted the Wolfcamp and Bone Spring formations. Comparing production normalized per well and per foot of lateral length in the Wolfcamp, MRO wells experience a higher peak BOE/ft but show a steeper decline in relation to COP wells due to lower volumes of associated gas (Figure 3). In the Bone Spring, MRO wells exhibit similar characteristics to Wolfcamp wells, albeit with a shallower decline, and thus a narrower cum BOE per well gap to COP wells (Figure 4). Across both formations, only 25% of MRO wells are 2-mile laterals compared to 2/3 of COP wells, with MRO preferring 1- and 1.5-mile laterals. 

6-7-2024-Figure 2 COP Permian Overview
Figure 2.  Combined COP & MRO Permian Basin coverage and production. 

6-7-2024-Figure 3 Wolfcamp COP MRO
Figure 3.  Production analysis of the Wolfcamp for COP and MRO wells including A) Gas-oil ratio B) BOE cumulative volume per foot plotted against lateral length C) BOE cumulative volume per well and D) BOE per foot of lateral length per well. 

6-7-2024-Figure 4 Bone Spring COP MRO
Figure 4. Production analysis of the Bone Spring for COP and MRO wells including A) Gas-oil ratio B) BOE cumulative volume per foot plotted against lateral length C) BOE cumulative volume per well and D) BOE per foot of lateral length per well. 

Leveraging TGS Well Economics Data within Well Data Analytics and assuming current price decks with 2-mile laterals, COP Wolfcamp type wells yield $3.7 million NPV 10 while Bone Spring wells yield $2.9 million NPV 10 compared to -$0.9 million and $1.0 million for MRO type wells, respectively. However, if the lateral lengths are altered for MRO wells to the preferred 1- and 1.5-mile laterals, the NPVs for the Wolfcamp change to $4.1 million and $1.6 million per well, and $6.0 million and $3.6 million for the Bone Spring. This could explain the upside economics COP chief executive Ryan Lance indicated during the initial announcement of a “high quality, low cost of supply inventory” where COP can increase the cumulative BOE per well with its 2-mile lateral completion strategies. 

From a Delaware Basin perspective, this deal provides COP with an opportunity to profitably increase production and maintain its position as a top 10 operator by volume. Using TGS Well Data Analytics and Well Economics Data, we were able to quickly compare assets, plot historical production profiles, evaluate normalized well performance, and determine economic development strategies. 

With TGS Well Data Analytics, this kind of analysis can be performed rapidly. For more information on TGS Well Data Analytics or to schedule a demo, please contact us at WDPSales@tgs.com.